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How Much Documentation Do You Really Need For a Tax Return?

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Tax time article headerTax time is one of the few times of the year where keeping an absurd amount of paper in your possession is socially acceptable. But while most of us can confide in our receipts to keep us safe navigating our tax return, receipts aren’t always enough – especially if you get audited by the ATO. 

As one such Australian told the ABC some weeks ago, claims for $120,000 of self-education over three years lead to a full-scale audit.  When asked to supply bank statements as well as receipts for their education, they were taken aback, but this is not an alien concept for audits from the ATO. Unfortunately for this person, they made mistakes in previous returns leading to a $24,000 debt – but this doesn’t have to be the case for you.  

Jumping through various hoops to only get stung with a big debt is a pretty jarring experience and you are destined to learn some lessons going through that type of hardship. The number one lesson they learned?  

Keep records and use a tax agent 

The ability for tax agents to easily change previous years returns and to accommodate sudden changes in your financials makes keeping yourself safe during an audit much easier. Furthermore, keeping records needs to stop being an exclusively analog process. Scanning your receipts into software such as XERO or Dropbox not only frees up space in your pocket but makes it far easier to organise and recall receipts.  

At the end of the day, if you have correctly worked out your claims so you aren’t claiming more than you should be and have your documentation in order, you have nothing to worry about. If you aren’t confident that you can correctly work out your deductions, take the stress away and contact a tax agent. We can help you get the most out of your tax return, give us a call today on 3367 0852 or email us through mail@raaccountants.com.au 

Minimum Wage Increases, What They Mean For You

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The Minimum Wage Panel on 30 May 2019 handed down its minimum wage decision for 2019. 

From the first pay period commencing on or after 1 July 2019, the National Minimum Wage will increase to $740.80 per week, or $19.49 per hour.

Feature for Minimum Wage article

What this means for you: 

  1. Employers who pay their employees at the National Minimum Wage or Modern Award rates of pay will need to apply the increase in the first full pay period commencing on or after 1 July 2019; 
  1. Employers who currently pay above National Minimum Wage or Modern Award rates of pay are not obliged by this decision to increase their rates of pay, but need to ensure their rates remain at least as beneficial, once the increase is applied; and 
  1. Employers who pay under enterprise agreements must ensure that the base rates in those agreements remain at least equal to the new minimum Modern Award rates. If you pay any of your employees under annualised salary arrangements you will need to conduct an audit of those annualised salaries against the new Award rates and working patterns to ensure the annual salary compensates for award entitlements. 

If you are an employee unsure of the award rates for your line of work, you can check out the award calculator HERE

Need Help? 

If you need help with updating your pay systems for these new rates, don’t hesitate to contact our expert accountants!  

Non-Compliant Payments: How Are They Changing in 2019?

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When you are paying your employees, there are certain parties you need to withhold amounts from and instead send this to the ATO. This is to ensure these parties don’t have to pay larger amounts of unnecessary tax at the end of the year. We’ve put together a handy guide to make sure you don’t get caught out heading into the end of the financial year.  

From July 1, 2019 you can only claim deductions for payments made to your workers where you have met the PAYG withholding obligations for that payment.  

If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must: 

  • Withhold the amount from the payment before you pay it 
  • Report the amount the ATO 

Any payments you make where you haven’t withheld or reported the PAYG tax are non-compliant payments. You won’t be able to claim a deduction if you don’t withhold any PAYG tax or report the PAYG tax.  

You can only claim a deduction for the following payments if you comply with the PAYG withholding rules: 

  • Salary, wages, commissions, bonuses or allowances to an employee  
  • Directors’ fees 
  • To a religious practitioner  
  • Under a labour hire arrangement 
  • For a supply of services where the contractor has not provided you with their ABN 

These are all well and good, but what if you are providing something which is not cash, goods and services for example. If this is the case, you will still have to report the PAYG tax in order for this to be classified as a compliant payment and allow you to claim a deduction.  

It’s important that you ensure you are complying with PAYG withholding and reporting obligations for a payment. If you don’t, you face losing your deduction for that payment or existing penalties that apply, which can be a hefty fine. 

If you do make a mistake, you don’t need to start hyperventilating, instead you should lodge a voluntary disclosure form and correct your mistake as soon as possible. However, if you should have withheld PAYG tax and didn’t, you do stand to lose your deduction for that payment.  

As always, you can get in contact with us if you have any worries about your PAYG activity.

 

How Will Tax in Australia Change After the Election?

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There is only a short time before the Federal Election on 18 May 2019, and there’s a lot of wild speculation.

We’re not trying to recommend who you should vote for, but instead we believe that it is vital that our clients understand how they will be affected by the result of the Election.

Here are some of the key ways you may be impacted:

  • The amount of personal income tax and Medicare levy you will pay
  • The amount of capital gain that will be subject to personal tax
  • Opportunity to continue to convert excess franking credits into cash tax refunds
  • Altering the tax treatment of trust distributions
  • Ability to offset prospectively investment losses against other income (i.e. negative gearing)
  • Ability to claim a full deduction for the cost of managing your tax affairs; and
  • Remove deductibility on personal superannuation contributions and lower the annual concessional contribution cap

A note of caution here, as there is little detail associated with some of the proposed changes. While we have listed below the main policy announcements, the detailed legislation might differ substantially, so we encourage you to be mindful of this!

This is what we know so far (at time of writing):

Labor’s Tax Policies

  1. A tax on those receiving distributions through Family or Discretionary Trusts at 30%. These are small business structures, and this will affect many business owners.

 

  1. Doing away with the cash refunds for excess franking credits through a SMSF.

 

  1. Increasing the personal tax rate in the top tax bracket by an additional 2%.

 

       4. Maintaining a company tax rate at the full 30 per cent (%) for companies with turnover exceeding $50 million.

 

  1. Higher personal tax rates at the top end and lower personal tax rates at the lower end (i.e. less than $125,000).

 

  1. Limit negative gearing on investment properties to newly built residential dwellings from a yet to be determined date after the election. Property investments made before this date will not be affected as they will be grandfathered. The ability to negatively gear other asset classes will also be restricted.

If the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income such as salary and wages. This excess will need to be carried forward for offset against future investment income or capital gains.

It will apply on a prospective global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses;

 

  1. Providing landlords who build new residential dwellings an annual subsidy for 15 years of $8,500 a year if the home is let out at 20 per cent below market rates;

 

  1. Much higher capital gains tax when you sell an investment property or other taxable asset due to the halving of the Capital Gains Tax (CGT) discount to 25 per cent for individuals. All investments made prior to 1 January 2020 will be fully grandfathered, so the new rules won’t apply to them.

 

  1. A new deduction (the Australian Investment Guarantee) that will enable a 20 per cent deduction in respect of the purchase of any eligible asset worth more than $20,000.

 

  1. Capping of deductions for managing tax affairs to a maximum of $3,000. This cap will impact individuals, trusts and partnerships. A carve-out is to apply for individual small businesses with positive business income and annual turnover up to $2 million.

 

  1. Whistle-blower rewards for tax evasion; and higher penalties for tax exploitation promoters.

 

       12. Superannuation:

  1. Oppose catch up contributions on concessional contributions and tax deductibility on personal superannuation contributions;
  2. Lower annual non-concessional contribution cap to $75,000 and reduce high-income super contribution threshold to $200,000 so that more Div293 Tax will be paid by higher income earners;
  3. Increasing the superannuation guarantee to 12 per cent when fiscal circumstances allow;
  4. Phase out the $450 minimum monthly threshold to receive super guarantee contributions, as part of a broader women’s super-security package; and
  5. Higher penalties for employers not paying SG.

 

The Coalition’s Tax Policies

  1. Companies with a grouped turnover of less than $50 million have a reduced company tax rate of less than 30 per cent. Tax cuts already enacted as follows:
  • 5 per cent 2019-20 income year
  • 26 per cent for the 2020-21 income year
  • 25 per cent for the 2021-22 income year and for subsequent income years

The government will no longer proceed with implementing its plan to have a 25 per cent tax rate apply to all companies;

 

  1. The government has legislated changes to personal income tax thresholds, as announced in the 2018-19 federal budget. Personal tax changes legislated are to be rolled out in three tranches over the next seven years as detailed in the table above;

 

  1. No change to current arrangements regarding negative gearing of investment property;

 

  1. No change to the CGT discount, which currently sits at 50 per cent for individuals;

 

  1. No change to the current arrangements regarding trust distributions from discretionary trusts. Currently distributions are subject to tax in the hands of beneficiaries at marginal income tax rates, which could result in a lower effective tax rate for those distributions;

 

  1. No change to the current arrangements regarding imputation, in particular the full refund of excess imputation credits. This means that excess imputation credits can be converted into cash refunds;

 

  1. Superannuation – While not directly a tax policy, the government is proposing a three-year audit cycle for SMSFs that have a history of good record-keeping and compliance;

 

  1. The $30,000 immediate asset write-off is available to 30 June 2019. There is no certainty beyond this date; and

 

  1. Establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal process. It will also create a dedicated Small Business Taxation Division within the AAT which will include a supporting case manager, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing.

 

It’s hard to imagine not being impacted in any way.

There are many other election issues that will influence a voter’s preferences and, at the end of the day, it is about making informed choices.

Please contact us anytime if you would like our advice (before and after the Election) about these proposed tax policies and how they may affect you. We’re here to help you!

What the Election Means for Tax

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The federal election is looming with a speculated May election, but all the major parties stand quite differently on tax. How are we meant to make sense of the policies amongst the politics? 

With the both major parties budget intentions now on the table, it’s time to unpack what these would mean for Australians. There are five major areas of tax that we can expect to be shaken up, particularly if there is a change of government. 

  • Personal tax cuts 
  • Franking credits 
  • Discretionary trusts
  • Negative gearing
  • Capital gains tax

Personal tax cuts 

For starters, the coalition have announced a three-stage process for tax cuts. This begun in 2018 with the increasing of the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000. Following this, the coalition plan to increase this bracket again from $90,000 to $120,000 at the start of financial year 2022/23. Finally, the coalition plans to increase this bracket yet again from $120,000 to $200,000 thus removing the 37 per cent bracket completely.  

Labor intend to roll back the latter two stages of this if elected, as well as looking to cap the amount individuals could deduct for the management of personal tax affairs. There is intended to be a carve-out for individual small businesses with positive business income and annual turnover up to $2 million.  

Franking credits 

Labor intend to do away with the current system of individuals earning below the $18,200 threshold receiving refund for all their imputation credits. Proposing a return to the system instated in the 80s during Bob Hawke’s stint as PM whereby imputation credits can be used to reduce tax, but shareholders will not receive cash refunds from the government.  Pensioners will be excluded from this system through a “pensioner guarantee.”  Scott Morrison and the coalition currently have no policy in place for removing franking credits.  

Discretionary trusts 

While the coalition has no plan to tax discretionary trusts, Labor intend to introduce a standard minimum 30 per cent tax rate for discretionary trust distributions to mature beneficiaries. Labor intend to reduce income splitting use through this plan, minimising tax. There are some carve-outs intended for non-discretionary trusts with this plan, such as deceased estates, etc. Farm or charitable trusts will also be exempt.  

Negative gearing 

While the coalition have not announced any intention to change the current policies for negative gearing, Labor intend to limit negative gearing to newly built housing from 2020. Investments previous to 2020 will not be affected, being grandfathered and still allowed to claim deductions.  

Capital gains tax

Labor hope to reduce the capital gains tax discount for assets held longer than 12 months from 50% down to 25%. The CGT discount is not intended to change for small business assets. The coalition’s focus for CSG changes are on eliminating foreign residents’ entitlements to claim the main residence exemption when they sell property in Australia. However, these have seemingly been put on hold.  

With budgets and the election just around the corner there are bound to be further changes proposed and will update you on those as they are announced. 

ATO Waving Penalties For Unpaid Superannuation Payments

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The ATO will be waiving penalties for the hundreds of businesses who have admitted failures to pay superannuation to their staff after a ‘botched’ amnesty.

An amnesty was rolled out in May of 2018, which offered employers who failed to pay super entitlements stretching back to the 1990s a “clean slate.” Unpaid super is estimated as being worth up to a whopping $6 billion a year in Australia, with the government hoping this initiative would encourage employers to pay their workers super entitlements. 

While the policy has been dumped, the amnesty for employers will still run for 12 months. Anyone failing to use this amnesty as a time to declare their past wrongdoings is warned they will face penalties in the future to the sum of half the money owed, on top of the unpaid super. 

Employers who have already made claims to the ATO are being treated as though they had voluntarily reported themselves under current rules. This means they must repay unpaid super as well as interest to the employee and an administration fee per employee of $20 per quarter. 

To be eligible for the superannuation amnesty, businesses will need to:

  • Not be subject to an audit of your Superannuation Guarantee (SG) for the relevant periods 
  • Voluntarily disclosed amounts of SG shortfall or late payments that have not been previously disclosed for any period from 1 July 1992 to 31 March 2018 
  • Made the voluntary within the proposed 12-month amnesty period (24 May 2018 to 23 May 2019) 

If you are unsure whether you are meeting your superannuation requirements effectively, give us a ring on 07 3367 0852 or email us at mail@raaccountants.com.au 

Single Touch Payroll For Everyone!

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Small business STP

It is now official, all businesses no matter how many employees they have will be required to electronically file each pay run with the tax office using Single Touch Payroll (STP) as of July 1. With 40% of the nation’s workers employed by small businesses, this is a big opportunity for cloud-based solutions to overhaul the efficiency of your small business.  

Xero has been the royalty of cloud-based solutions for some time now, with STP being only two clicks away. For the 90,000 businesses yet to embrace any software, this is a great time to start looking.  

What does this mean for micro-businesses?

As of last week, Xero announced a standalone solution for micro-businesses with four or fewer staff. This payroll-only product will process, pay and report information for up to four employees, with an expected price of just $10 a month (what a steal!).  

Did you know RA Business Advisors are long term Partners with Xero? If you want to hear more about what Xero can do for your business, give us a ring on 07 3367 0852 or email your questions through to mail@raaccountants.com.au

How Strong Is Cloud Security?

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Data Security

All SMEs including accounting firms have a common issue: security, with ransomware, data breaches, employee theft and scam artists becoming an increasing issue for all companies. Unfortunately, the security market is becoming more convoluted with merchants who only care about sales, as well as poorly made “silver bullets.” How do we keep our firms secure amongst all the noise? We simply have to seek out experts and keep ourselves informed.

One of the biggest debates when it comes to considering your data security is what do you use to share data? How do you share access to apps? Well, as Ping’s senior technical architect Sarah Squire explains

“the two best practices are to encrypt data when it is stored and when it is transferred. When transferring to a client, the client needs a private encryption key on their computer to decrypt the file.”

What is identity management and why do I need it?

Identity management may be a foreign concept to many of us, but this is another integral practice for securing your firm. Employing identity management means setting up identities for each member of a firm and giving them separate permissions for logging into your software.

A common solution to the use of identity management is a password manager, either locally or through the cloud. However, as Sarah Squire states “(Password managers are inferior) because a password manager is controlled by employees. You could have an employee who is a bad actor and you need to log them out of all their apps at once.”

Five Tips To Get Your Business Ready For The New Year

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New Years Resolution

1. Make sure you are maximising your use of Xero

The cloud is the place to be in 2019, has your business gone digital? If you haven’t fully integrated the cloud into your business just yet don’t worry, because we are here to help. The benefits from cloud accounting are endless but here’s just a few: scalable, cost-effective and easy to use, no need for software to clog up your computer and no need to worry about huge initial costs as Xero runs off a monthly subscription.  

Not only this, but apps have brought a whole new dimension of utility to the Xero platform. Research from Xero has shown businesses which make use of apps grow net profits 30% faster. Apps enable you to combine a specialised set of services into an app stack that works together to streamline your business. Eliminating so many of the hassles commonly associated with the archaic endless list of computer programs you would use in the past. Goodbye dumb license agreements, goodbye constant update waits, hello more time on your hands. 

You can read about some of our favourite apps here

2. Automate your business processes

Automating your business processes reduces manual tasks in processes such as forwarding data, extracting information from databases and much more. A good business integrated app stack will not only eliminate human-caused errors but will save you money.

Faster, cheaper and powerful, these apps will not only identify bottlenecks in your business but will eliminate them too. 

3. Review your expenses

Has it been a while since you took a good hard look at your supplier costs or your additional spending? It’s time to get on top of your expenses and cut unnecessary costs out of your life. The first step is to examine your quarterly invoices and see if there are any unwanted patterns arising. Shop around and make sure your current supplier is giving you the best deal you can get.  

Review the purpose of what you are spending money on and consider if it’s critical to the success of your business. Think about the renewal fees and whether there are loyalty discounts you can access. 

Consider making some payments to decrease your debt, whether it be the company credit card or back payments to suppliers. Making payments ahead of interest coming into the picture is an important policy for ensuring you don’t have unnecessary debt.

4. Forecast your cash flow

A well thought out cash flow forecast is helpful for predicting surpluses and deficits in cash flow. This mean your business can make better decisions, as well as prepare for potential business changes or decisions.  

There’s three steps to a cash flow forecast: 

  • Estimate your likely sales for each week or month 
  • Estimate when you expect to receive payments 
  • Estimate your likely costs 

After you’ve taken these steps, add an opening bank account balance and the revenue, less expenses for each period to calculate your likely cash position. 

Once you’ve taken the necessary steps to create your cash flow forecast, make sure you are updating it throughout the year.  

5. Come in for a free consult!

If you want to take your business to the next level this year or have been thinking about taking the next step to become a pro at Xero

GIVE US A CALL!

Contact us on 3367 0852 or mail@raaccountants.com.au

Managing Your Cash Flow Over The Holiday Period

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December is usually the busiest time of the year for retail and hospitality businesses. But businesses in other sectors often find that their sales slowdown and their customers stop paying them for a few months. So cash flow dries up.

Whether your business is large or small, well-established or in start-up mode, you need to take a planned approach to managing cash flow during the holiday season. Here are few tips for keeping on top of cash flow management during the Christmas/New Year holiday period.

1. Keep Invoicing In The Lead Up To Christmas

Don’t let your business admin slip in the rushed lead-up to Christmas. This is the most important time of the year to stay on top of your invoicing. You may find that many customers will be slow to pay because their businesses are closed over the Christmas period.

2. Set Clear Expectations With Your Customers

Be clear with your customers that you expect them to pay within the pre-arranged credit terms over the Christmas period. Phone regular slow payers a few days before payment is due to confirm that they’ll be paying on time. The phone is always a more effective method than email. If you’re not comfortable having this conversation with your customers, your accountant or bookkeeper may be able to assist.

3. Service Business – Offer A Discount For The “Quiet Time

If your business is usually quiet in January, why not offer your clients a 10% discount if they book you in for January? Why not offer them a 15% discount if they also refer a neighbour or a friend? Set whatever discount amounts work for you. This is the thing: A strategy like this will keep your business busy and some cash coming through during the usually quiet period.

4. Use The Quiet Time To Work On Your Business

If sales are a little slow in the lead-up to Christmas, use the time wisely to hit the ground running int he new year.

The pre-Christmas slow down is a great time to work through the to-do list you’ve been compiling all year.This might include taking a thorough inventory, searching for more suitable lending alternatives, completing a comprehensive competitor analysis or researching the market for new products and suppliers.W